Banks in Microfinance: Do They Have Any Strategy?

Microfinance in India has been a big thing for the past decade. In fact, for sometime it was felt that it was a solution for poverty in India before everyone realized that the expectations from it were over hyped. However, with so many players joining the bandwagon, banks have also joined in the fray, sometimes as an ally of MFIs and sometimes as competitors, and mostly as agencies fuelling the intense competition between agencies.

Although almost every bank has entered microfinance, from nationalized banks to private banks to foreign banks, there does not seem to be any focused strategy for the same. Apart from ICICI bank which is very aggressive in the field, all others have a policy of wait and watch, and have been very conservative. While a lot of the banks are there in this sector to fulfill their target of priority sector lending, a few banks believe in the bottom of the pyramid theory, and feel that this sector can actually be a rewarding source of revenue. Yet, no one seems to have a strategy in place, and currently each bank is doing a lot of trials and errors to find out what can be the best strategy, while in the process leaving the MFIs to make hay.

There are three ways that banks reach out to the Microfinance clients. One is by direct lending to such clients, which is usually and mostly through government schemes that come out from time to time. Also, they reach out to people individually. This is not much popular among the bankers as this method has seen large defaults and NPAs for banks. The second method is the SHG Bank Linkage model, where the groups formed by either the bank or some other NGO is given loans by the bank. Most nationalized banks, through NABARD have been following this method, but again, the results are not very positive. The third and the most popular way is to not give loans to the ultimate clients directly, but to lend to an intermediary, the MFI, which in turn onlends to clients. The MFI pays the money back to the bank. Again here there are different methods in which this is done. Term Loans, Cash Credit Loans or Agency model, where the MFI works as an agent of the bank and charges a commission for its services, while the loan portfolio and the clients belong to the bank.

As discussed earlier, the first two ways have not been very successful. The third is the most popular way but there are many problems with that too. One of the major problems there is that an intermediary in between increases the final cost of borrowing to the client by a huge margin. Another problem is that there are very few strong and well established MFIs which can be given loans to, and identifying and separating potential and good MFIs from the poor ones is really difficult, and certainly not an area which the banks are very capable at. Of course there are compatibility issues and the Partnership Model of the ICICI has gone through rough weather recently due to its over aggressive nature and RBIs guidelines. But all this has happened mostly because there has not been a very well thought out strategy on the part of the banks based on their own strengths and weaknesses and available resources. Even if there has been one, it has not been very well thought out or either has been too aggressive or too conservative.

Yes, there is a huge market for Microfinance out there, and yes there is fortune at the bottom of the pyramid, and banks, if they operate properly, can be the most efficient players in the sector, giving the poor clients very good deal on financial services, as banks can provide a full range of financial services at very reasonable rates. But for this to happen, they first need to have a concentrated, focused and well targeted strategy.

Should Social Networking Sites Like Orkut be Banned?

The recent happenings in Mumbai have once again raised questions over the existence of social networking sites like orkut.com. While the Shiv Sainiks have made violent protests against the use of these sites because of some derogatory remark against its party supremo and against Shivaji, the Mumbai Police also seems to have been keen on getting the site banned.

The orkut site has been very popular lately, and has been attracting many users who do social networking, meet and keep in touch with old friends, develop new friendships, discuss issues, voice their opinions on issues they feel about strongly or just have fun. There are communities on orkut ranging from ‘Social Development’, ‘Venture Capitalists’, ‘I love My Dad’, ‘I love Maggi’, ‘I want to kill Himesh Reshammiya’ etc. etc. etc. Here comes the thing of freedom of expression again, and the site promotes that.

Personally, I have found wonderful use of this site. Though I do not participate much in the communities of orkut, I have found many old, long lost friends on orkut, who I had never expected to meet again, and getting back in touch with them has been an absolute pleasure. Again, keeping in touch with your friends and associates or just dropping a short message has never been easier. One never forgets birthdays anymore, as they are listed on orkut. We even had a small reunion of school friends who had lost touch over time but again got back through orkut.

That was the good part. But there is an ugly side to it too. There are many emails floating around, many news articles from time to time, telling us about unpleasant incidents that happened over the sites. A girl and a boy meeting through orkut and setting up a date, where the girl is later found murdered in a hotel room, or about terrorists being active on the sites, harassment, sexual threats, misuse of pictures, intimidation are quite commonplace. Then there are offensive communities. There was a community, ‘I Hate India’, which showed the picture of burning of the Indian flag. Also there are porn communities, communities spreading hatred or violence and all such sorts. Now here it is that how far can such freedom of expression be taken?

Is banning the site a solution to all these problems? To some extent, maybe yes. You cannot, in the name of freedom of expression, allow such things to go on which puts to risk the privacy, safety and lives of people. But then these are things that happen in the society, with or without orkut. Even without orkut, there were still crimes in the society. As in everything else, nothing works more than self censorship. One should choose for oneself whether one wants privacy and be a member of such a site or not, or put one’s picture in the site or not. Also, the discretion to go out with someone that one has met only online is exercised by the person who goes out, and as in all cases, restrain has to be maintained in that, and such cases happen not only when people go out with someone they have met on orkut or elsewhere. Infact, one cannot put the entire blame on orkut for all the mishaps that have happened.

So, what is the solution? I guess banning the site is not the solution. Then even emails and mobile phones and cameras and many many such things will need to be banned because these have also been the medium of many crimes and harassments. The solution is not in banning the site and gagging the freedom of expression, but then for the promoters of the site to come up with as many possible ways that the misuse of the site can be stopped, like preventing the photos to be easily copied from the site, which has been one of the easiest way of harassing and impersonating people.